As per media sources, India-based SpiceJet Limited is in talks with The Boeing Company BA and Airbus Group SE EADSY to acquire about 100 new narrow-body aircraft for a contract value of $11 billion. This is a part of SpiceJet’s long-term business strategy that has saved the low-cost carrier from the brink of a financial crisis last year.
SpiceJet intends to buy Boeing 737 MAX and Airbus A320neo in a deal which is expected to be completed by the end of Mar 2016. Management said that once the number of airplanes to be bought is decided, it may raise fresh equity or debt to pay for the same.
In 2014, Boeing had nabbed an order from SpiceJet for 42 737 MAX 8s valued at $4.4 billion. That order had taken SpiceJet’s order count with Boeing to 90 airplanes. The aircraft maker expects deliveries for 737 MAX to begin in 2017.
Boeing’s Next Generation 737 jets as well as its MAX model continue to be the pillar of its strength in the commercial airplane sector. In the second quarter of 2015, Boeing delivered 197 commercial airplanes, up approximately 8.8% year over year.
Boeing’s 737 MAX is estimated to be 20% more fuel-efficient than its current 737 family. The MAX version is also projected to have lower operating costs than its competitors. Big savings on fuel promised by 737 MAX have helped to win a number of orders worldwide. The first 737 MAX is expected to begin flights tests next year with scheduled completion by the end of this year.
A320neo and 737 MAX are currently in a head-to-head competition. Airbus’ A320neo has been able to clinch a higher market share than Boeing’s 737 MAX giving it a lead in the narrow-body segment. A320neo’s superior passenger comfort feature gives it an edge over 737 MAX’s lighter weight and more fuel efficient attributes.
Demand for Boeing’s commercial airplanes is on the rise owing to the steady improvement in passenger and freight traffic especially in the emerging markets. In its recently released outlook, Boeing anticipates the commercial fleet to double over the next two decades to 43,560 airplanes, fueled by sustained 4.9% annual growth in commercial passenger traffic.
Jet aircraft manufacturers will see strong demand in the commercial aircraft market, primarily in China, India, the Middle East and Africa, and other emerging countries due to the growing popularity of the low-cost carrier business. Continuous rollout of advanced features by both Airbus and Boeing will decide who stays in the front line in this duopolistic aircraft manufacturing market.
Zacks Rank
Boeing currently has a Zacks Rank #3 (Hold). Some better-ranked players in the aerospace and defense space include General Dynamics Corp. GD and Lockheed Martin Corp. LMT. Both the stocks currently display a Zacks Rank #2 (Buy).
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